How to Do IT Cost Optimization: Best Practices
What is IT cost optimization? In a nutshell, IT cost optimization drives down a company’s costs by making various operations more efficient while maximizing business value. With 2023 looming, it is apparent that 2022 was a significant year for the IT industry. According to Statista, in 2022, global IT spending reached a whopping $4.5 trillion, which indicates a 3% growth compared to 2021.
The acceleration suggests now is the prime time to reassess spending on software development and look for effective IT optimization solutions to make IT spending more efficient.
The insights above affect both small companies and huge organizations. In one of its reports, KPMG indicates all IT organizations need to reevaluate their IT spending strategies to prepare for a turbulent future. Keeping all these in mind, let’s take a closer look at the IT cost optimization phenomenon, compare it to cost-cutting, explore key principles, and learn more about the main strategies.
What Is IT Cost Optimization?
In short, IT cost optimization is a practice of reducing costs while maximizing business value simultaneously. As a distinct method, this approach is business-focused and works continuously. IT cost optimization is not a one-time deal but a long-lasting procedure of simplifying, standardizing, and unifying processes, services, and platforms driving down your IT spending.
Regarding key components of IT optimization, there are several aspects to mention. First, the method entails a series of strategic decisions emphasizing areas that can be optimized. Second, a company or IT organization needs to innovate and invest in technologies that make operations more efficient by automating them. Third, the above need to lead to profit-making by spending less. IT cost optimization is a rational process of eliminating excess and streamlining what has been left.
You might ask why companies need IT cost optimization. A simple answer — every business wants to find a way to spend less. A more complex answer is — wasteful behavior and lack of streamlining make a business unviable in a turbulent economy, which is the one we are experiencing right now.
IT cost optimization solutions include proactive and corrective measures alike. Both approaches might entail:
Overall, one can see that IT cost optimization is a complex yet incredibly important process. It helps bring automation and streamlining to business operations to make IT organizations operate more efficiently. Yet, one must not confuse IT cost optimization with cost-cutting.
Cost-Cutting vs. IT Cost Optimization
There are several factors to consider avoiding mistaking cost-cutting for IT cost optimization. Most importantly, the former is a one-time action, while the latter is continuous. When a company optimizes its expenses, the main objective is to drive down spending and maximize business value. Often, while companies suggest they are doing cost optimization, they engage in cost-cutting.
When comparing two approaches, consider the following:
- Cost optimization is sustainable, while cost-cutting is uncalculated.
- Cost optimization is continual, while cost-cutting is a one-time deal.
- Cost optimization maximizes value, while cost-cutting is about reducing financial waste.
- Cost optimization stems from digitization and automation, while cost-cutting emphasizes layoffs and salary-cutting.
- Cost optimization is long-term and proactive, while cost-cutting is short-term and reactive.
Keeping the above in mind, it is vital to distinguish IT cost optimization from cost-cutting. You need to improve your business, which will make it more efficient. Avoid cutting costs by eliminating talent. While it can help in the short term, it will be a disaster in the long term. Now, when knowing the difference between the two concepts, it is time to learn about key principles companies use when applying IT cost optimization.
IT Cost Optimization Key Principles
The primary levers holding the entire cost optimization framework are financial transparency, monitoring, people, and processes.
At its core, IT cost optimization is a financial matter. Essentially, with this method, you look to cut down costs to have finances to spend on what matters. If done correctly, the balance between cutting and spending leads to greater value. However, this system only works with financial transparency involved.
Why? Namely, to optimize something, you need to have a clear vision of what needs to be optimized. In other words, you must clearly understand your IT organization’s spending. Without the organization’s finances being clear, it is impossible to optimize the infrastructure correctly.
The next IT cost optimization principle is about continuous long-term monitoring. This is what distinguishes cost optimization from cost-cutting. Optimization entails cutting costs and driving down costs in a strategic manner. The entire process should be monitored and tweaked along the way. Only then can you have a prolonged optimization effort bringing maximum value.
Oftentimes, monitoring entails collecting reports, analyzing data, and reviewing all the outgoings. Look for anomalies and inconsistencies to know what to optimize. You can get services from AWZ, Azure, and Google Cloud, offering instruments for continuous cost optimization monitoring.
People and Processes
The truth is — no matter what technologies you adopt and how much automation you implement, you still need people to back up everything. In IT cost optimization, people, technologies, and processes complement one another.
How does it work? In short, IT organizations adopt technologies to streamline processes and make them efficient. However, without the people in the picture, the system collapses. So, the last principle of IT cost optimization is people and processes because these two coexist. As a result, the cost optimization approach is founded on the principles of financial transparency, long-term monitoring, and people, along with processes.
IT Cost Optimization Strategies
Now that you know much about IT cost optimization, let’s look at its key strategies. There are several ones to mention:
1. Staff Augmentation or Outstaffing
An estimated 88% of IT organizations use oustaffing as a viable IT cost optimization strategy. It allows companies to tap into business transformation. The approach has good prospects, with the IT oustaffing market reaching $650 billion. Respectively, consider oustaffing as a cost optimization approach.
2. Hybrid Cloud Implementation
When it comes to cost optimization, cloud technologies represent a new trend. In such an area, companies eliminate physical infrastructure in favor of cloud ones. It proves to be cost-effective in terms of maintenance and overall running costs. The number of businesses adopting cloud technologies has increased by 59%. In such a case, transferring your IT infrastructure into the cloud is a great IT cost optimization strategy.
3. Defining Cost Structures
One key IT cost optimization strategy has a proper, well-defined cost structure. It entails breaking down the entire cost framework into smaller parts to quickly evaluate each one and present particular alternatives that can emerge. Essentially, you need a clear vision of a cost structure to understand which variables can be made more efficient to optimize the entire system.
4. Identifying Inefficiencies
Identifying inefficiencies, the ones that can be optimized, is a major IT cost optimization strategy. Often, you need to assess the number of resources you have to manage projects, applications, and platforms. Yet, keep in mind that there is a high chance the applications and platforms you run will change with time.
5. Improving Financial Transparency
Make certain you emphasize one of the key principles mentioned above — financial transparency. It is one of the IT cost optimization strategies directed at seeing how all IT services are being delivered and what costs are linked to the process. How can you implement the strategy? Make certain to contact a CFO, if you have one, to check the ledger’s ins and outs. If there is enough transparency in the company, the strategy will soon reveal any inefficiencies and misconceptions that can be corrected.
Intetics Experience in IT Cost Optimization
When it comes to IT cost optimization, Intetics focuses on a unique approach based on several key models of software engineering excellence.
As mentioned before, outstaffing is one of the key IT cost optimization strategies. In that context, Intetics appeals to Offshore Dedicated Team® (ODT®) to balance the cost with the quality. The team uses the right technologies, tools, and processes to ensure the client’s ideas are implemented cost-efficiently based on an all-inclusive pricing model.
Intetics uses Predictive Software Engineering to emphasize transparency, manageability, and predictability within project requirements. It allows a clear view of a timeline, budget, and goals. With the approach at play, a high degree of financial transparency emerges, which makes effective IT cost optimization possible.
Finally, Intetics utilizes a unique set of tools and techniques allied to TETRA™. In a nutshell, it helps assess various quality levels of the system, as well as products from both technical and business perspectives. Within TETRA’s scope, an in-depth audit is performed to reveal any potential inefficiencies and fix them, thus making IT services cost optimization assessment possible.
The Bottom Line
IT cost optimization is different from cost-cutting. It is the long-term method of bringing costs down while maximizing the business value. The phenomenon is founded on financial transparency, continuous monitoring, and the link between people and processes. Finally, in terms of IT cost optimization strategies, your IT cost optimization project manager can rely on outstaffing, hybrid cloud implementation, cost structure defining, inefficiencies identification, and financial transparency improvement. Respectively, make sure IT cost optimization turns into something other than cost-cutting, and if you lose control of the process, there is always Intetics there to help you fix that.